There is little to recommend the practice of housing actively managed funds within an ETF structure, argues BlackRock.
Speaking in Sydney on Tuesday, BlackRock head of iShares Jon Howie indicated he was unconvinced by the concept of actively managed ETFs.
“Broadly, active management is an important part of healthy functioning capital markets,” Mr Howie acknowledged.
“The next question is: does that active management need to be in the form of an exchange-traded fund?”
He conceded that there were “strong arguments” that buying active strategies on an exchange would be cheaper for investors than buying on a platform.
But in order for active management to work – and there was plenty of data to support the view that it doesn’t, he added – “patience is required,” Mr Howie said.
“Timing alpha is very difficult. Do we need a liquid instrument [where] one of the primary functions of that instrument is the ability to efficiently trade into and out of markets and to build overall portfolios, to rebalance those portfolios effectively, for example? Do we need that in the form of an ETF?” he asked.
“The other question is: what is the structure [in which] we deliver that to market?”
Furthermore, the concept of active ETFs risked confusing investors, he added.
Where traditional, straightforward and index-based ETFs are transparent, active ETFs are “ultimately non-transparent” and “certainly have a very different liquidity profile than standard ETFs”.
“I think as an industry we've got an important job to do to ensure that investors understand the difference in those two structures, and I don't think we're doing that very well,” Mr Howie concluded.
Correction: The headline and first paragraph of this story have been amended to reflect BlackRock's opposition to active ETFs. The original version incorrectly implied that BlackRock was opposed to the idea of combining ETFs with actively managed products in a portfolio.
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